The Extra 1%
and the Impact of Bending Trend
What a difference 1% can make! The Japanese business philosophy of Kaizen suggests that continuous incremental improvements of just 1% will, over time, compound to make significant impacts on an organization.
Professional sports often cite that the difference between a champion and a competitor is often less than 1%. Indeed, in the 2016 Olympics, the difference between gold medal-winning Usain Bolt’s performance (9.81 seconds) and second place Justin Gatlin (9.86 seconds) was 0.5%. Between Gatlin and sixth place was just another 1% (9.96 seconds).
The impact of 1% is no more apparent than in medical benefits, which notoriously increase year after year. Incremental improvements across the board that bend the trend 1% can have significant impacts over time.
While medical cost trends have come down from the year over year increases exceeding 10% common in the mid-2000s, medical and prescription drug trends are still often cited in the 5.0% to 8.0% range, with many carriers using the upper half of that range when pricing renewals.
Across IMA Benefits, our average renewal between 2019 and 2020 was 3.9% and was 4.1% between 2020 and 2021, for a two-year average of 4.0%. Compared to even the low end of the 5.0% to 8.0% market average range, those 1% improvements add up over time.
For an average cost group of 300 employees, bending the trend by 1% provides savings of $40,000 in one year. Now extend those savings over 10 years, and just as Kaizen promised, the impacts are enormous. By 10 years, the 1% trend improvement produces $640,000 in annual savings and a cumulative savings of $3,100,000 over 10 years.
Through incremental improvements ranging from more efficient plan designs to matching employers with the right network and funding mechanisms to a Whole Health approach to chronic condition management, our teams have helped clients consistently beat the trend. While our clients still battle year-over-year cost increases, IMA’s book of business renewals has demonstrated the ability to give clients “the extra 1%.” Over time, that incremental improvement makes a significant impact.
Consultants at IMA take a “One Size Does Not Fit All” approach to actively managing client benefits. By working with clients to understand their specific needs, we help clients implement appropriate strategies in various areas, resulting in benefits plans that meet a client’s goals, with no two clients being exactly alike.